Yet another ‘new Nasdaq’? Macau bids for a bourse of its own

October 16, 2019

Macau hosts millions of punters at its casinos every year. It could soon be reaching out to stock market investors as well, following news that local officials have asked for permission to launch their own stock exchange. Is the gambling giant really going to get its own bourse?

Media confirmation of the plan came via comments by He Xiaojun, the director of Guangdong’s provincial affairs bureau, that the new platform would be “modelled after the Nasdaq for offshore renminbi”. The Monetary Authority of Macao then issued a statement saying the idea was still being studied, although local newspapers said officials are hoping to get formal approvals to proceed by the end of the year.

News of the proposed exchange was soon prompting skepticism, especially in neighbouring Hong Kong, where commentators queried whether Macau has the know-how to run a bourse of its own.

The mismatch is even clearer in the cash and deposits available in the two cities: a local currency equivalent of about $82 billion in Macau in August, compared to $1.85 trillion in Hong Kong.

Presumably Macau’s plan is to find the investors from other jurisdictions rather than rely on homegrown funding. The former colony typically talks up its relationships with the Portuguese-speaking world, but it could choose to set up stock connect schemes with a range of potential partners, many of whom would be keen to tap into investment opportunities in China.

Maybe that would mitigate some of Macau’s shortfall in market expertise.

Other critics ask why another bourse is even needed. Apart from the stock exchange in Hong Kong, Shenzhen has one as well, including the ChiNext board, which has a mandate to bring smaller companies to market. Shanghai is also home to a longstanding bourse and it has just launched its STAR market offshoot, with a remit to win more listings from Chinese tech firms.

Ostensibly, each of these exchanges is chasing the kind of companies that Macau’s ‘Nasdaq’ might target as well.

Yet there’s a case to be made that Macau’s proposal is more credible than the critics think. For a start, Beijing has been pressing it to reduce its almost total reliance on its casino sector and a new financial market would start to shift some of the focus away from the baccarat tables. Another sweet spot is RMB internationalisation. As we reported two months ago, China’s Ministry of Finance sold its first ‘lotus bond’ in the city in July to kick-start the city’s claims as an offshore centre for the yuan. The plan is that the bourse draws on offshore yuan as well, sourcing Chinese currency reserves outside the mainland. That would give it a different spin to ChiNext and STAR, even if it were to chase similar listing candidates.

Macau’s chances would look even better if it can find a niche, perhaps by choosing to specialize in IPOs for companies with Greater Bay Area credentials. That would tap into another major policy initiative and give the new board more of a local footprint as well.

And finally, granting Macau the green light might have a further purpose. Rather pointedly the Guangdong official He Xiaojun mentioned Hong Kong’s political situation in his comments last weekend and the implication is surely that the city can’t be complacent about its status as the region’s financial hub.

In the same way that Shenzhen is now being loudly proclaimed as a ‘model city’ – with responsibilities for trialling new financial reforms and taking the lead in tech – the sense is that policymakers want to make clear that Hongkongers cannot take their favoured position in finance for granted.

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